Southwest, other discount airlines taking business from rivals
Thursday, June 17, 1999 | 11:18 a.m.
Southwest Airlines Co., the biggest low-fare airline, and smaller carriers such as Frontier Airlines Inc. gained business last month at the expense of larger rivals, in part as travelers sought lower-priced tickets.
Passenger traffic rose 15 percent in May at Southwest, the seventh-largest U.S. airline, while several smaller discount carriers also posted double-digit increases.
That compares with declines at the three biggest carriers -- UAL Corp.'s United Airlines, AMR Corp.'s American Airlines and Delta Air Lines Inc. -- and a 1.4 percent increase industrywide. May's lower traffic led to profit warnings at UAL and US Airways Group Inc.
The shift comes after major airlines put through three price increases this year, pushing leisure fares up 11 percent and business fares up 3 percent. The Internet is making it easier to comparison shop, and even some stalwart business travelers are switching carriers or booking ahead to cut fares, analysts said.
"Low-fare carriers are gaining market share, definitely," said Morten Beyer, chief executive of Morten Beyer & Agnew, an airline consulting firm. "They're all showing quite good growth rates, with Southwest being king. The big guys are hurting."
Small carriers are benefiting from other changes as well. Most are upgrading their fleets with regional jetliners, letting them offer more comfortable and faster service than the traditional propeller planes. They're also targeting small and midsize cities where major carriers have cut back service.
Investors are taking note. Southwest's stock has risen about 38 percent so far this year, compared with a 7 percent increase for the American Stock Exchange airlines index. Frontier's shares have tripled, while AirTran Holdings Inc., parent of AirTran Airlines, has seen its shares rise 82 percent.
Spurred by higher fares and easier access to rate information on the Internet, consumers are becoming better shoppers, analysts said. That helps Southwest, the seventh-biggest U.S. carrier, and its competitors in the low-fare market. "The key is whether low fare airlines can retain those customers," Warburg Dillon Read analyst Michael Stellwag said. "People are more willing to try them now that they are better educated consumers."
May traffic at Southwest rose to 3.16 billion revenue passenger miles -- a measure of the miles flown by paying passengers -- from 2.74 billion a year earlier. Frontier Airlines, which competes with United at its Denver hub, reported May traffic surged 49 percent to 162 million revenue passenger miles. The Denver-based low-fare airline's shares have surged more than four-fold in 12 months.
AirTran saw its May load factor -- a measure of how full the planes are -- rise to 64.7 percent from 60 percent in May 1998. AirTran competes with Delta Air in Atlanta.
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